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What to negotiate on energy and climate change?

The House of Commons Select Committee for Business, Energy and Industrial Strategy (the Committee) has published its negotiation priorities for energy and climate change policy following a sector enquiry, concluding broadly that maintaining the status quo to the extent possible post-Brexit would be in the best interests of the UK in respect of energy and climate change matters.

Whilst the UK Government has indicated its intention to leave the EU single market and the customs union, it suggested that elements of the current arrangements may remain in place. The Internal Market for Energy (IEM) is likely to be one of those areas where the Government will seek to retain the status quo. The Committee and the Government positions were aligned: to retain as free as possible access to the IEM and to remain an influential player on energy in the EU.

As the report describes, the IEM is a project to liberalise and harmonise the energy markets of EU member states, and is complemented by policies to promote security of energy supplies across the EU and to develop trans-European energy networks. Great Britain has 4GWs of operational electricity interconnectors (with a further 7.7GWs with regulatory approval) and four natural gas pipelines, trading on which is increasingly harmonised by EU regulation. Harmonised trading of electricity over interconnectors without the need to purchase interconnector capacity was estimated by National Grid to be worth £90m per year for the UK and so increased consumer costs following Brexit (rather than security of supply) were the primary concern of witnesses. The Committee therefore advocated that the UK should seek to maintain ongoing access to the IEM, with no accompanying tariffs or barriers to trade. It also noted the importance of this issue to Northern Ireland and recommended that the Government protects the continued operation of the Single Electricity Market, through the UK’s wider access to the IEM, or alternatively through special arrangements for the island of Ireland.

Although the Government has given notice to leave the Euratom Treaty as part of its notice under Article 50 (for further background to the Euratom Treaty, please see Brexit means Brexit from Euratom as well), the Committee’s view was that this exit should – if legally possible - be delayed to allow time for new arrangements to be put in place (which would be challenging to do within two years) or transitional arrangements put in place (which may need to be longer than the three years proposed by the European Parliament). The main impacts of leaving Euratom were considered to be on nuclear safeguarding, trade and research and development. Nuclear trade (of fuel but also intellectual property and services) is facilitated through the nuclear common market and nuclear cooperation agreements between the EU and third countries, which would need to be renegotiated after the UK’s exit from the EU. Any hiatus in trade could disrupt supply chains and have serious impacts on existing and planned generation. The Secretary of State agreed that it was a very high priority to have arrangements allowing for the movement of nuclear fuel in place.

The Government in its evidence did not clarify its position in relation to remaining within the EU Emissions Trading System (EU ETS), the EU greenhouse gas cap and trade system. Despite the need for reform of the EU ETS, witnesses noted the system was central to delivery of the UK carbon budgets. The fifth carbon budget was calculated on the assumption the UK would participate in the EU ETS and, therefore, whilst the Committee recommended membership of a reformed EU ETS, it recognised that if that were not possible, the fifth carbon budget should be revised upwards so the UK can remain on a cost-effective path to meeting its target of an 80% emissions reduction by 2050. If the UK were to leave the EU ETS, witnesses were unanimous in their view that the UK should not leave until the end of Phase III in 2020. The Committee sought to keep options open post-2020 but recommended that the Government should not seek to leave the EU ETS until it has established a clear alternative, which can deliver emissions reduction targets without either destabilising investment or undermining the UK’s commitment to tackle climate change.

To maintain investor confidence in the sector, witnesses and the Committee called on the Government to provide clear long-term commitment to its energy and climate change policy. Funding for research and development and for infrastructure projects was also probed by the enquiry, with the UK identified as a significant beneficiary of funds from the European Investment Bank, Horizon 2020 and the Connecting Europe Facility. The Government has already committed to guarantee Horizon 2020 funding and will seek to continue collaboration in research and development with the EU, or seek to expand domestic opportunities and foster wider international collaboration.

Brexit: planning for the future as negotiations continue

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